Following a significant downturn in October, bitcoin’s value plummeted over 20% from its record high of $126,000, prompting JPMorgan strategists to declare the cryptocurrency undervalued when compared to gold.
The decline was attributed to substantial liquidations in perpetual futures contracts alongside repercussions from a notable theft of $128 million from the decentralized-finance protocol Balancer. According to Nikolaos Panigirtzoglou, a global markets strategist at JPMorgan, this deleveraging process effectively brought the ratio of open interest in perpetual futures contracts back in line with bitcoin’s market capitalization, reflecting a clearance of excess leverage from the market.
Despite the turbulence, redemptions from U.S. spot bitcoin exchange-traded funds remain modest relative to previous inflows. Panigirtzoglou indicated that most of the deleveraging activity is likely completed, with the open interest-to-market-cap ratio serving as a crucial indicator for short-term price movements.
JPMorgan’s analysis further revealed that bitcoin is currently more affordably priced than gold when adjusted for volatility. While gold’s volatility rose as its price exceeded $4,000, bitcoin’s relative volatility has diminished. Panigirtzoglou calculated that for bitcoin to align with the $6.2 trillion in private-sector gold investment on a risk-adjusted basis, it would need to increase by approximately two-thirds, suggesting a price target near $170,000. He noted, “Having been $36,000 too high compared with gold at the end of last year, bitcoin is now around $68,000 too low.”
Looking forward, JPMorgan predicts that if current volatility and risk-adjusted metrics persist, bitcoin could experience “significant upside” over the coming six to twelve months.
